Four-phase process with significant policyholder participation
WATERLOO, ON, March 2, 2015 /CNW/ - Economical Insurance today provided an overview of the draft regulations for Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion recently released by the federal Department of Finance. If and when implemented, these regulations would allow federally-regulated mutual property and casualty insurance companies such as Economical to demutualize.
"Our board and its special committee on demutualization are reviewing the draft regulations to determine if they can be practically implemented and whether Economical will submit comments to the government on the draft regulations," said John Bowey, vice-chair of the board of directors and head of Economical's special committee on demutualization. "We will make the formal decision on whether to proceed with demutualization once the regulations are final."
"As part of our commitment to keeping our stakeholders informed, we are offering an overview of the applicable draft regulations as they stand today, prior to the completion of the comment period," said Bowey.
Demutualization is a regulated process in which a mutual insurance company converts to a stock company with share capital and voting shareholders. As part of that process, eligible policyholders receive the proceeds of the conversion in the form of cash, shares or a combination of cash and shares.
For Economical, the primary focus of demutualization is to become a share company so that it has access to capital that would allow it to better compete with other insurers. While there is a distribution of benefits, a demutualization is not about the distribution of a company's surplus. The financial benefits of demutualization derive from a transaction accompanying the demutualization process, for instance through which some or all of the newly issued shares would be sold by way of an initial public offering and stock exchange listing.
The draft regulations include a provision that prevents anyone from becoming a "major shareholder" (such as one that owns 20% or more of a class of outstanding voting shares) of the company for the first two years after its demutualization. This appears to preclude a takeover or acquisition of Economical by an individual buyer at the outset or during that period.
Subject to specific exceptions, an eligible policyholder is: a person who holds a mutual policy of the demutualizing company (not its subsidiaries) on the date the board decides to proceed with demutualization ("eligible mutual policyholder"), or a person who holds a non-mutual policy of the demutualizing company (not its subsidiaries) and has done so for the 12-month period ending on the date the board decides to proceed with demutualization ("eligible non-mutual policyholder").
Policies issued by subsidiaries of a demutualizing company would not be eligible policies. Accordingly, in Economical's case, eligible policies are those issued by the Economical Mutual Insurance Company, including those sold by Family Insurance Solutions and under the Western General brand. Policies issued by Perth Insurance Company, Waterloo Insurance Company (also known as Economical Select), Missisquoi Insurance Company, and Federation Insurance Company of Canada would be excluded.
Distribution of Benefits (Allocation)
Demutualization benefits are the financial benefits that eligible policyholders would receive in a demutualization. The allocation of these benefits will be negotiated by court-appointed and supervised policyholder committees representing the two categories of eligible policyholders.
The amount of benefits any person would receive depends on various factors including the total amount of demutualization benefits to be distributed, the total number of eligible policyholders, and the negotiated allocation methodology.
The draft regulations provide a four-phase demutualization process, including significant participation by eligible policyholders.
Phase 1: board resolution recommending demutualization
The first phase of the demutualization process requires the board of directors to pass a resolution to recommend demutualization. Economical's board intends to meet soon after final demutualization regulations are in force to decide whether to formally proceed with demutualization.
Phase 2: first vote of eligible mutual policyholders
The second phase is a vote of eligible mutual policyholders on whether to proceed to the next stage of the demutualization, which is to negotiate a conversion proposal with eligible non-mutual policyholders. If this first vote passes and with OSFI approval, Economical would send a "Notice of Intent to Negotiate" to all eligible policyholders explaining the eligibility criteria and summarizing the conversion process.
Phase 3: policyholder committees negotiate the conversion proposal
The third phase is the negotiation of the conversion proposal between two policyholder committees representing, respectively, eligible mutual and eligible non-mutual policyholders. The conversion proposal contains detailed terms for a company's demutualization, including how demutualization benefits will be allocated. The members of these committees are appointed by the court, along with two sets of counsel who act for eligible mutual and eligible non-mutual policyholders. Within 12 months of the appointments of the policyholder committees, the negotiation of the conversion proposal must be completed and the proposal submitted to OSFI for its approval, along with required actuarial opinions.
Phase 4: second vote to amend by-laws and third vote to approve demutualization
The fourth phase involves the second and third policyholder votes.
The second vote is by eligible mutual policyholders to approve by-law amendments to permit eligible non-mutual policyholders to vote on the conversion proposal. This change is necessary because demutualization can only occur if there is a vote to approve the conversion proposal that includes eligible non-mutual policyholders.
The third vote is by all eligible policyholders to approve the conversion proposal and to authorize the company to seek final approval from the federal Minister of Finance.
After the four phases, the Minister of Finance decides whether to approve the conversion proposal and demutualization.
"The approach set out in the draft regulations is complex and will take time to complete. We estimate that, if each vote passes, the earliest that a conversion proposal could be approved for Economical would be 18 months to two years after regulations are in force," Bowey said. "On the positive side, the board believes Economical will continue to strengthen its financial position, as it has over the past several years."
Economical will provide regular updates on the process and stakeholders are encouraged to visit the company's website www.economicalinsurance.com for information.
This news release is provided for general information purposes only and does not constitute legal, business or other general advice. Persons seeking advice with regard to legal, business or other matters should contact a licensed professional.
Forward looking statements
Certain of the statements in this press release regarding our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements, or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other similar or comparable words or phrases, are intended to identify forward-looking statements.
Forward-looking statements are based on estimates and assumptions made by management based on management's experience and perception of historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Many factors could cause Economical's actual results, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: Economical's ability to implement its strategy or operate its business as management currently expects; unfavourable capital market developments or other factors; government regulations; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; the outcome of a demutualization transaction; and general economic, financial and political conditions.
All of the forward-looking statements included in this press release are qualified by these cautionary statements. These factors are not intended to represent a complete list of the factors that could impact Economical, however, these factors should be considered carefully, and readers should not place undue reliance on forward-looking statements we make. We are under no obligation and have no intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
About Economical Insurance
Founded in 1871, Economical Insurance is one of Canada's leading property and casualty insurers, with $2.0 billion in annualized premium volume and $5.2 billion in assets as at December 31, 2014. Based in Waterloo, this Canadian-owned and operated company services the insurance needs of more than one million customers across the country. In 2010, Economical announced its decision to become the first federally-regulated mutual property and casualty insurance company to pursue demutualization. Economical Insurance conducts business under the following brands: Economical Insurance, Economical, Western General, Economical Select, Perth Insurance, Family Insurance Solutions, Federation Insurance and Economical Financial.
SOURCE Economical Insurance
For further information: For media inquiries, contact: Doug Maybee, Economical Insurance, www.economicalinsurance.com, (T) 519.570.8249, (C) 519.404.0989, [email protected]; For general policyholder inquiries, contact: 1-866-302-6046 (toll free) or 1-514-982-8708 (local/international), [email protected]